There’s an interesting detail at the end of this New York Times article on borrowers who strategically default–that is, they choose to walk away from the home when its value is significantly less than the mortgage balance. It turns out that the homeowner mentioned at the start of the article applied last fall for a loan modification with Bank of America after his income level had dropped, and this was BofA’s response: “The lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same. ‘That may have been the last straw,’ Mr. Koellmann said.”
According to one finance insider, BofA’s reaction is not surprising:
Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.
“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”
The paper notes that the whole idea of strategic default may be more hype than reality at this point, as a very small number of borrowers actually do it. But if BofA has to choose between cutting that guy some slack or watching him walk away like he’s a big shot real estate developer, maybe it’s a good time to step up and offer a true compromise.
“No Help in Sight, More Homeowners Walk Away” [New York Times]